Neo-classical synthesis, Macroeconomics

Assignment Help:

Neo-classical synthesis is a synthesis of classical model and Keynesian model. In brief, it states that Keynesian model is correct in the short run whereas the classical analysis is correct in the long run. 

Let's consider a concrete instance. According to Keynesian model, an increase in G will increase Y and decrease unemployment. In the classical model, an increase in G would have no effect at all on Y and unemployment. In neo-classical synthesis, an increase in G will create a temporary increase in Y however Y will return to its original value after some time. 

To justify neo-classical synthesis, it's helpful to identify the problem with classical model in the short run and problem with the Keynesian model in the long run. As for classical model in the short run, we figured out that within this model, it's difficult to describe deep recessions with high involuntary unemployment. In the long run, it's more reasonable to believe that the economy can get out of the recession by itself. Problem with the Keynesian model in the long run, as we would see, is assumption of a stable Phillips curve.


Related Discussions:- Neo-classical synthesis

Neoclassical view, Roles of government in controlling market forces under n...

Roles of government in controlling market forces under neoclassical view

Illustrate the policy - beggar my neighbour, Illustrate the policy - Beggar...

Illustrate the policy - Beggar my neighbour 'Beggar my neighbour' policies are government policies which attempt to gain a competitive benefit at the expense of other countries

Consumer price index, i need help comparing real values in the base year do...

i need help comparing real values in the base year dollars

Interest rates and inflation, Q. Interest rates and inflation? Assume y...

Q. Interest rates and inflation? Assume you have 1 million on 1st January 2008. A basket of services and goods similar to the CPI basket costs 100,000. You can then purchase ex

Economy could become stuck, According to Keynes, the economy could become s...

According to Keynes, the economy could become stuck at a low income level if: A. aggregate demand and aggregate supply are independent of one another. B. declines in aggregate dema

Energy infrastructure, Energy Infrastructure: Electricity is one of th...

Energy Infrastructure: Electricity is one of the main determinants of the quality of life. In India, the power sector has not kept pace with the growth in demand resulting in

Application of revealed preference approach, Application of Revealed Prefer...

Application of Revealed Preference Approach It has been strongly argued, especially by Sir John Hicks, that one major advantage of revealed preference theory is that it is expl

Crowding out is associated, Crowding out is associated with: A. an increase...

Crowding out is associated with: A. an increase in business investment resulting from an increase in government borrowing and higher interest rates. B. an increase in private savin

#.., what are the purposes of taxation

what are the purposes of taxation

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd